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How I’d invest a £20K Stocks and Shares ISA to build long-term wealth

Middle-aged Caucasian woman deep in thought while looking out of the window
Image source: Getty Images

With this year’s deadline for ISA contributions fast approaching, I have been thinking about how I can best use the opportunity. One thing I like about a Stocks and Shares ISA is that it can be a useful vehicle for me as I try to build wealth over the long term.

If I had a spare £20,000 to invest in my ISA and wanted to try and grow my wealth over time, here is how I would go about it.

Getting started

The first thing, of course, would be actually having a Stocks and Shares ISA. If I did not have an ISA already I would open one, so I could put the money into it now, before the looming contribution deadline.

Pick an investment strategy

I would want to buy and hold shares for years rather than constantly messing around with what was in my ISA, racking up dealing charges at the same time.

So I would set out an investment strategy I felt suited my objectives and risk tolerance. I could then use that to help me decide how to invest my cash.

Growth, income or both

For example, I could try to focus on building dividend streams, either to withdraw or else leave inside the ISA and compound. Alternatively I might decide to focus on massive operators I think have further growth prospects ahead, such as Amazon and Alphabet.

Another approach could also be based around growth, but targeting small and medium-sized firms rather than the big boys. Holding such shares in my ISA for years, I would have the sort of timeline needed in many cases for a young business to grow into its potential.

These are not mutually exclusive strategies. I could mix and match, for example allocating £12,000 to income shares and £8,000 to growth ones. The key thing is deciding what I think is the most suitable strategy for me. That will give me a yardstick against which to measure my investment choices down the line.

Hunt for shares

Using that approach, I would scour the market for shares that I felt could be a good fit. In each case, my focus would be on buying into great businesses with attractive share prices. I have a bias for proven business models, but with growth companies in their early stages finding such proof of profitability can be tricky. Many ultimately successful firms are loss-making in their formative years.

The good thing about a Stocks and Shares ISA is that, having put my money into it, I do not need to invest it immediately. Indeed, I would be in no rush.

At the moment, I do see some great bargains in the UK stock market. But if I did not, I would simply wait patiently to invest – for years if necessary – rather than lower my standards. If I can find truly brilliant shares to buy, I would then happily wait for time to work its magic.

The post How I’d invest a £20K Stocks and Shares ISA to build long-term wealth appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has positions in Alphabet. The Motley Fool UK has recommended Alphabet and Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023